The revenue impact of tax deductions availed by individual taxpayers for donations to political parties has witnessed a sharp surge post-Covid-19, surpassing corporate contributions in the two financial years leading up to the 2024 Lok Sabha elections.
According to the Statement of Revenue Impact of Tax Incentives under the Central Tax System in Budget 2025-26, individual and Hindu Undivided Family (HUF) taxpayers claimed tax benefits worth ₹2,275.85 crore under Section 80GGC of the Income Tax Act in FY23. This figure is projected to rise by 12.36% to ₹2,557.15 crore in FY24. In contrast, corporate taxpayers claimed deductions of ₹514.40 crore in FY23, with a projected increase to ₹577.98 crore in FY24 under Section 80GGB of the Income Tax Act.
A Decade of Rising Political Contributions
Historical budget data highlights a steady increase in the revenue impact of deductions for political donations. While the total tax deductions claimed by individuals, firms, and corporates peaked at ₹3,516.47 crore in FY22, the combined revenue impact stood at ₹2,905.96 crore in FY23, projected to reach ₹3,265.14 crore in FY24. Over the past decade (since FY15), the estimated revenue impact of tax concessions on political donations has totaled a staggering ₹14,473.75 crore.
Why the Post-Covid Surge?
An analysis of previous years' data reveals that political contributions saw a significant jump post-Covid-19. The revenue impact of tax deductions rose from ₹544.53 crore in FY20 to ₹740.03 crore in FY21, reaching ₹1,650.86 crore in FY22. This trend suggests increased political engagement and financial contributions from individual taxpayers.
Understanding Sections 80GGB & 80GGC
The Income Tax Act, 1961 allows various taxpayers including individuals, companies, firms, Association of Persons (AOPs), and Body of Individuals (BOIs) to claim deductions for donations made to political parties.
- Corporate taxpayers can claim deductions under Section 80GGB, provided contributions are made via cheques, account transfers, or electoral bonds (cash contributions are not deductible).
- Individual taxpayers and non-corporate entities can avail deductions under Section 80GGC, with similar conditions.
Looking Ahead
With a growing trend of individuals leveraging tax benefits for political contributions, the upcoming fiscal years may see further changes in donation patterns. As discussions around electoral funding transparency continue, the role of tax deductions in political financing remains a key area of scrutiny.
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